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The risk of divorce and household saving behavior

  • Libertad González
  • Berkay Özcan

We analyze the impact of an increase in the risk of divorce on the saving behaviour of married couples. From a theoretical perspective, the expected sign of the effect is ambiguous. We take advantage of the legalization of divorce in Ireland in 1996 as an exogenous increase in the likelihood of marital dissolution. We analyze the saving behaviour over time of couples who were married before the law was passed. We propose a difference-in-differences approach where we use as comparison groups either married couples in other European countries (not affected by the law change), or Irish families who did not experience a significant increase in the expected risk of divorce (such as very religious families, or single individuals). Our results suggest that the increase in the risk of divorce brought about by the law was followed by an increase in the propensity to save of married couples, consistent with a rise in precautionary savings interpretation. An increase in the risk of marital dissolution of about 40 percent led to a 7 to 13 percent rise in the proportion of married couples reporting positive savings.

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File URL: http://eprints.lse.ac.uk/38463/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 38463.

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Length: 45 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:ehl:lserod:38463
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  1. Betsey Stevenson, 2008. "Divorce Law and Women's Labor Supply," NBER Working Papers 14346, National Bureau of Economic Research, Inc.
  2. Lupton, J. & Smith, J.P., 1999. "Marriage, Assets, and Savings," Papers 99-12, RAND - Labor and Population Program.
  3. Betsey Stevenson, 2006. "The impact of divorce laws on marriage-specific capital," Working Paper Series 2006-43, Federal Reserve Bank of San Francisco.
  4. Saku Aura, 2003. "Uncommitted Couples: Some Efficiency and Policy Implications of Marital Bargaining," Microeconomics 0304002, EconWPA.
  5. Gonzalez, Libertad & Viitanen, Tarja, 2006. "The Effect of Divorce Laws on Divorce Rates in Europe," IZA Discussion Papers 2023, Institute for the Study of Labor (IZA).
  6. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Journal of Economic Literature, American Economic Association, vol. 34(4), pages 1797-1855, December.
  7. Papps, Kerry L., 2006. "The Effects of Divorce Risk on the Labour Supply of Married Couples," IZA Discussion Papers 2395, Institute for the Study of Labor (IZA).
  8. Shelly Lundberg & Elaina Rose, 1998. "The Determinants of Specialization Within Marriage," Discussion Papers in Economics at the University of Washington 0048, Department of Economics at the University of Washington.
  9. Lommerud, Kjell Erik, 1989. "Marital Division of Labor with Risk of Divorce: The Role of "Voice" Enforcement of Contracts," Journal of Labor Economics, University of Chicago Press, vol. 7(1), pages 113-27, January.
  10. Johnson, William R & Skinner, Jonathan, 1986. "Labor Supply and Marital Separation," American Economic Review, American Economic Association, vol. 76(3), pages 455-69, June.
  11. Laurence R. Iannaccone, 1998. "Introduction to the Economics of Religion," Journal of Economic Literature, American Economic Association, vol. 36(3), pages 1465-1495, September.
  12. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February.
  13. Laurence R. Iannaccone, 1998. "Corrigenda [Introduction to the Economics of Religion]," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 1941-1941, December.
  14. Luis Cubeddu & Jose-Victor Rios-Rull, 1997. "Marital risk and capital accumulation," Staff Report 235, Federal Reserve Bank of Minneapolis.
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